9-111-049
ROBERT S. KAPLAN
RICARDO REISEN DE PINHO
Volkswagen do Br
rasil: Driving Strategy with the
Balanced Scorecard
d
kswagen do Brasil (VWB), studied the color-coded charts and
d
Thomas Schmall, CEO of Volk
indicators on his wall. The data sh
howed financial, customer, process, and employee p
performance
through end-of-year 2008. Schmall a his management team had introduced the Balance Scorecard
and
ed
in 2007 as part of a program to reve
erse eight consecutive years of market share declines a financial
and
losses. So far, the turnaround had been successful. The new enthusiasm among the workforce,
d
e
consumers, suppliers, and dealers h led to strong sales increases and a return to profita
had
ability.
But Schmall, in January 2009, c
could now see the impact of the global financial crisi Sales had
is.
th
plummeted in the 4 quarter and newly-produced vehicles were parked around VWB’s plants
d
waiting for consumers to begin spen
nding again (see Exhibit 1 for VWB’s monthly sales). Many of the
previously green marks on sales and profitability on Schmall’s scorecard had turned yell
d
low and red.
During the previous two months VWB had responded quickly to the slowdown i consumer
in
ion
purchasing by cutting back producti and reducing spending.
Schmall was cautious about whe
ether it was time to restore funding or wait until sale recovered
es
before gearing up production sche
edules and resuming the spending on discretionary programs.
y
Further cutbacks in production sch
hedules and investment would jeopardize plans for m
market share
expansion and new product devel
lopment. VWB, located far from the company head
dquarters in
Wolfsburg, Germany, had consider
rable discretion for local, short-term decisions. The general rule
from corporate headquarters came f
from a German expression, whose English translation was, “Drive
n
as fast as you can see.” Schmall wo
ondered whether the VWB Balanced Scorecard, which had helped
h
drive growth in 2007 and 2008, cou guide his executive team as they made the difficu decisions
uld
ult
ahead.
The Automotive Landscape in Brazil
e
Brazil had the fifth largest land area and population in the world. It enjoyed abund
d
dant natural
resources including minerals, water and large quantities of cultivated and unused fertile land. Brazil
r,
e
was an attractive consumer market as well as an export platform for commodities and m
manufactured
s
goods. Approximately 85% of its 53 million households lived in urban areas, half in the more
developed and industrialized South
heast region, where the per capita income was nearly twice that of
the Northern region.
________________________________________
____________________________________________________________
______________
Professor Robert S. Kaplan and Senior Researche Ricardo Reisen de Pinho of the Latin America Research Center prepar
er
red this case with
guidance and assistance from Professor Krishna Palepu. The authors wish to acknowledge the support and work done o this project by
on
ped
Christopher Davies Junior. HBS cases are develop solely as the basis for class discussion. Cases are not intended to serve as endorsements,
sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2010 President and Fellows of Harvar College. To order copies or request permission to reproduce materials, ca 1-800-545-7685,
rd
all
write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized,
y
photocopied, or otherwise reproduced, posted, or tr
ransmitted, without the permission of Harvard Business School.
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REV: DECEMBER 20, 2010
Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard
Brazil’s recent global presence came only after multiple internal and external economic crises. In
1994, the government launched an economic stabilization plan that reduced inflation to single digits
and helped the country become the largest and most diversified economy in Latin America. With
gross domestic product doubling from 1994 to 2008, Brazil now had the world’s ninth largest
economy.1
Competition in Brazil
The automotive sector produced 19% of Brazilian industrial GDP. The sector employed, directly
or indirectly, more than 1.5 million people in more than 200,000 companies. North American and
th
European automobile manufacturers had entered Brazil in the first half of the 20 century by
assembling vehicles from completely or semi-knocked down imported kits. In 1955, the Brazilian
government mandated that the multi-national companies either abandon the Brazilian market or
begin producing vehicles with 90% to 95% local content within five years.2
By 2008, Brazil had 25 automotive assemblers producing cars, light commercial vehicles, trucks
and tractors in 49 industrial plants. Brazil’s automotive industry had a total installed production
th
capacity of 4.0 million vehicles per year and total revenue of $74.0 billion.3 Globally, Brazil was the 6
th
largest producer of passenger vehicles and the 5 largest consumer market.4
VW, Ford, General Motors and Fiat had been the market leaders for decades. In 1991, these four
manufacturers held a 97% share of the Brazilian market, but, by 2008, their share had declined to 77%
as French producers expanded their presence and strong companies from Japan, Korea and China
entered. Much of the increased share for these new competitors had come from VWB, but Schmall
still saw opportunities for growth in the country’s market:
The Brazilian auto market has 6.9 inhabitants per vehicle compared to a ratio between 1 and
2 in the US and Germany, about 3 in South Korea, and 4 in Mexico. We should catch up by
2015 and then Brazil will shift to a replacement-type market.
Volkswagen do Brasil
In 2008, Volkswagen Group (“VWAG”), had a global market share of 10.3%, making it the third
largest automotive company in the world. It employed 370 thousand people, and generated revenues
of €113 billion from sales of 6.3 million vehicles across 10 different brands including 3.6 million under
the VW brand.5 In July 2008, VWAG announced an ambitious 10-year vision for the VW brand: “By
2018, we aim to sell 6.6 million [VW] vehicles per year, achieve a 21% return on investment, be
viewed as the top employer, and earn the industry’s top ratings for customer satisfaction and process
quality.”6
rd
VWAG’s Brazilian subsidiary, VWB, was the 3 largest in the VWAG system, behind China and
Germany. It operated four plants, produced revenues of €7.04 billion, and employed about 22,000
people. While focused on small and middle size vehicles, such as the Gol, Fox and Polo, VWB had
the most complete car portfolio within the Brazilian market. It offered 22 different models, 9 of which
had been designed and developed within a modern product design prototype center located at the
São Paulo headquarters plant.
In 1953, VWAG had opened its first production plant outside Germany when 12 employees began
assembling the popular “Beetle” sedan from imported parts in a rented warehouse in São Paulo.7 In
1956, VWB introduced a van with fifty percent of parts and components produced in Brazil. By 1969,
2
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111-049
Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard
111-049
In the 1970s, VWB launched medium-sized cars, such as the Passat, for export into the
international market and created the first ethanol-fueled vehicle9. By the end of the decade, the
company accounted for 40% of Brazil’s auto exports, shipping vehicles to Europe, North America,
Africa, and the Middle East.
In 1986, overcapacity and Brazil’s dire macroeconomic situation led to a 20% decline in the
domestic automotive market.10 From that point, the industry was highly volatile. During the first
years of the 1990s, the market expanded rapidly and total Brazilian production output exceeded 1.1
million vehicles in 1993, peaking at 1.6 million units in 1997.11 Then Brazil experienced several
regional and global crises12 and production levels fell back to 1.1 million units in 1999, returning to
the previous peak level only by 2003.
VWB’s domestic sales dropped from 580,000 vehicles in 1997 to 280,000 units in 2003. From its #1
market share position of more than 30%, it dropped to #2 in 2001 and to #3 in 2003 with a 21% share.
VWB attempted to maintain minimum production levels by emphasizing exports, which increased
from 45,000 vehicles in 1997 to 164,000 in 2003. 13 (Exhibits 2A and 2B show recent history of VWB’s
market share, sales, and revenues.) Schmall commented on the dilemma faced by VWB during this
period:
The appreciation of the Brazilian currency, relative to the dollar and euro, along with
increases in the local labor and raw materials costs ended up defeating VWB’s export-led
market strategy. Because of intense competition in global markets, VWB could not raise prices
on products shipped and export margins failed to cover the company’s excess capacity costs.
Adjusting to its new market position, VWB, in 2003, began the first phase of a restructuring plan.
While some progress occurred, VWB still posted its eighth consecutive year of losses in 2006, and two
key consumer indicators, “Things Gone Wrong” (TGW) and “Customer Satisfaction Index” (CSI) fell
short of management objectives.
The New VWB Management Team
In 2007, VWAG appointed Thomas Schmall as CEO of VWB. Schmall had started his career as an
assembly line supervisor; he subsequently held various managerial positions at VWAG plants in
South Africa, China and Mexico. He attracted corporate attention when he introduced new
procedures in the way managers interacted with production lines at Wolfsburg, the largest VWAG
plant in Germany. Schmall recalled:
Traditionally, administrative offices were located far from production lines. I moved
managers inside manufacturing units where they could plan, set targets, align objectives with
all personnel and teams, implement actions and measure their impacts. In 1999, Ferdinand
Piëch, then VWAG’s CEO, asked me to reorganize VWB’s plant in Curitiba, Brazil. After four
challenging years, I moved to Slovakia where I was responsible for three different VW brands
and 12,000 employees. The success of the Slovakian plant led to my return to Brazil as CEO.
Schmall, now 45 years old, did not want to continue VWB’s reliance on cost reduction, employee
layoffs, and capacity downsizing. Inheriting a company known for using good German technology to
produce small, reliable vehicles, he had an ambitious vision to “build a high performance team that
would drive VWB to become the South American automotive industry’s leader in quality,
innovation, sales, and profitability on a sustainable basis.” He wanted to aggressively “re-brand”
3
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VWB’s strategy of producing reliable and inexpensive cars had earned it a 61% share of Brazil’s car
production.8
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Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard
Josef-Fidelis Senn, 53, had been appointed VWB’s Vice President of Human Resources in 2006.
Senn combined initial training as an economist with a doctoral degree in ecology and sustainability.
VWAG recruited him in 1998, from his position at the powerful German Steel Association, to become
human resources manager at one of its largest plants. Senn soon moved on to head global HR
coordination and helped introduce the Balanced Scorecard within this function. His first task for
VWB involved difficult negotiations to restructure a contract with the powerful local workers’ union.
Senn commented on the state of VWB’s employee relations:
The difficult years had made VWB bureaucratic and conservative and created an
atmosphere of apprehension and instability among the workers. A 2005 Gallup survey showed
a low score for employee commitment and satisfaction. In our 2006 labor negotiations, we
reached an impasse that could have triggered a long and harmful series of strikes at a crucial
point in the company’s turnaround strategy. At the end, we had only a few shutdowns and
were able to reduce our workforce through buyouts and early retirement plans, and to
introduce a new compensation structure and more flexible work arrangements.
The change in our management approach for working with employees was crucial to
establishing a new culture that could sustain improved financial performance. Before 2007, if a
tension existed between volume and quality, the culture tilted towards maintaining production
volumes. We wanted to instill a new culture for employees to solve problems as they arose,
eliminate defects, and reduce health and safety incidents even if these actions cost money and
decreased short-run production output.
Carsteen Isensee, 50, became VWB’s CFO in 2007. He had worked in planning and finance
throughout his VW career, including joint venture projects in China and as plant controller in
Slovakia and South Africa. Isensee commented on VWB’s situation when he arrived:
It was a period of cost cutting and workforce reduction, low corporate morale and the
constant threat of having its unprofitable operations shut down by the German head office. We
had to reeducate the VWB management team to spend money wisely so that we could afford
to enlarge markets, improve processes and innovate on new products.
Schmall included Senn and Isensee within an 11 person Executive Committee that would lead
VWB’s transformation (see Exhibit 3).
Using a Strategy Map and Balanced Scorecard for Cultural and Strategic
Change
The Executive Committee understood that to change VWB’s bureaucratic and slow moving
company culture required new relationships with key stakeholders: employees, suppliers and
dealers. Schmall and Senn had prior experience with the Balanced Scorecard and believed its
introduction into VWB would accelerate the adoption of the new strategy and culture. Senn
commented:
We needed a tool that could change the mindset of the company, something that could
help us communicate our objectives down to the factory floor. This would require a new
approach from top management, and a dedicated and empowered team responsible for
implementing and controlling this effort.
4
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VWB into one with enthusiastic and highly-motivated employees who continually introduced highperformance, innovatively-designed cars and light vehicles.
111-049
Schmall wanted the tool to become VWB’s primary management system. He appointed Senn’s
department to lead the project with Isensee’s Financial and Planning departments providing analytic
support. The initial task force, called the Strategy/BSC Committee, developed a strategy map based
on four Challenging Dimensions: Finance, Customer, Internal Process, and Potential and Growth.
(Exhibit 4 shows VWB’s Strategic Map for 2009, unchanged from the initial 2007 map, except for the
addition of a sustainability objective in the Potential and Growth dimension.)
The strategy map’s Customer objective, “Satisfy the Customer’s Expectations,” encompassed
dealers, VWB’s immediate customer, and consumers, the ultimate purchasers of VWB’s vehicles. The
second Customer objective, “Improve Company Image,” signaled the importance of rebranding VWB
as an innovative producer of high-quality vehicles. The Process objectives stressed developing a more
service-oriented culture among dealers, reducing costs while improving the quality and delivery
performance of suppliers, and, especially, improving the efficiency, cost, and flexibility of the
workforce and production system. The foundational Potential and Growth Challenge objectives
emphasized achieving a high-performance culture, developing an attractive and innovative mix of
products and a long-term commitment to sustainability. Collectively, the executive team expected
that achieving the objectives in the four challenge areas would enable the company to regain its #1
market position in Brazil.
Schmall commented on the reasons for developing the strategy map:
The map describes the strategy in a consistent and clear manner. The cause and effect
relations defined in the map clearly demonstrate how intangible assets, such as our employees,
get converted into tangible financial results. The map also translates the strategy into a
language that everyone can understand. It has the power to decode high-level objectives into
operational terms that mobilize our employee teams and enable them to monitor their results.
It establishes a direct relationship, from the CEO to shop floor employees.
He added:
We started by identifying, within the four BSC dimensions, the limited number of
objectives that would reflect the company’s strategic priorities. More than 20 would make the
map look like a forest and our employees would get lost. Developing the right metrics to
translate the strategic objectives was as important as defining the objectives themselves. And,
we had to establish challenging, yet attainable, targets for each metric to motivate every area in
the company to achieve excellent results.
VWB’s Executive Committee translated each strategy map objective into specific indicators and
assigned an executive to each objective (see Exhibit 5). The objective owner had the responsibility for
monitoring and achieving the performance targets for each of the objective’s metrics. The executive
owner also helped to select and guide the strategic initiatives that would drive performance for the
objective, and oversee the periodic data collection and reporting for the metrics and initiatives.
The executives developed action plans, detailing which department would be responsible for a
specific achievement, the milestones to be accomplished during a certain period of time, and finally, a
description of the necessary resources to be allocated to carry out that target. Top management
revised these action plans quarterly and thoroughly discussed them with middle and front-line
management levels.
With the senior executive team on board for the strategic direction, Schmall, Senn and Isensee
then presented the map and accompanying scorecard to the next level of 400 VWB executives as the
first milestone in the new transformation program, called Act to Win. “It had an impressive impact
on us,” said Flávio Ramalho, a senior manufacturing manager. “With the CEO leading the event,
5
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Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard
111-049
Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard
Following this initial presentation, all VWB executives went through a two-day training program
on the new strategy and the role of the strategy map and scorecard to help execute it.
Communicating the Balanced Scorecard
The executive team established an Office of Strategy Management (OSM) to coordinate all the
work required to roll the strategy execution program out throughout the company. The OSM
consisted of two groups: Strategy Formulation and BSC Management. (See Exhibit 6 for VWB’s BSC
Organizational Chart)
The Strategy Formulation group, supervised by Isensee, supported strategic analysis and strategy
formulation and funding. Senn oversaw the BSC Management Group, headed by Christopher Davies,
37, an administrator who formerly worked at VWB’s finance subsidiary. The BSC Management
Group included a representative from each area in VWB. The representatives organized the rollout of
the strategy across their business area and coordinated the initiatives that would be executed within
it. This group also led the communication of the strategy, strategy maps, and scorecards to all
employees. Davies commented on the importance of extensive communication:
To accomplish a transformation of this magnitude, you need a clear, comprehensive, and
relentless communication process. Otherwise, the change will sound like a restructuring
process, and the person in my position will be viewed as the messenger for headcount
reductions. Information on the BSC metrics and initiatives had to be reliable, on-time, and
continuous.
Senn concurred that communication would be key for the success of the transformation program,
“Communication is the backbone of cultural change and you should do it by constantly injecting
energy into the system via campaigns and competition.”
Senn launched multiple communication programs including special events, discussions and
training at regular work meetings, and internal competitions among the workforce to generate ideas
for translating strategic concepts into shop floor actions. The message was continually reinforced in
the company’s paper and electronic newspapers and intranet portal. The BSC Management Group
posted the strategy map on the wall of every room and location as a constant reinforcement of the
company’s direction.
6
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supported by all the top management, everyone clearly understood that something big and
important had just been launched.”
111-049
Among the more successful communication initiatives was
an internal contest to choose a mascot that could symbolize
and communicate the new strategy. The winning entry led to
Giga, a 1 meter tall sympathetic and futurist robotic character,
evocative of the 1960’s VW Beetle (see picture aside14). Giga
appeared at events to shake hands and ask questions to
employees about the strategy. He appeared on the internal
Intranet portal, and was featured in widely-read comic strips
(see Exhibit 7) in the VWB internal newspaper.
One manufacturing cell leader had recently asked for a
board game in which employees could advance their tokens
by correctly answering questions about the strategy map.
Davies and his group helped design and produce this board
game, which would be deployed soon.
Davies also introduced a new communications tool, an interactive role play game based on a
customized Learning Map, a visual representation of VWB’s history, current competitive
environment, and strategy (see Exhibit 8). During a 90 minute session with a group of 10
employees, a facilitator led a training exercise on how to win a rally whose endpoint was
achieving the leading market position in Brazil. During the rally, the facilitator and the team
discussed the company’s history and heritage, the current competition in the Brazilian automotive
market, consumer preferences, and the external environment. The team made suggestions on the
strategy VWB should follow to win, and how individual employees could contribute to the
strategy’s success. The final part of the rally’s journey traversed color-coded sections representing
employee capabilities and company culture, critical operating and support processes, success with
dealers and consumers, and financial performance. The BSC Management Group had trained
more than 200 facilitators to lead Learning Map exercise with a goal of having all 20,000+
employees participate in the game.
A novel communications medium had recently been introduced directly in the production line by
inserting, in place of a partially assembled automobile, a large electronic display containing the
strategy map (see Exhibit 9) accompanied by a short tutorial on some aspect of the map. The
production workers at the station watched and listened to the tutorial during the short break while
the display traversed down the assembly line.
Davies commented on the importance of the extensive communications program:
To create a new high performance culture, we wanted to capture the employees’ hearts and
minds. The Balanced Scorecard provided us with the tool for this cultural change. We aimed
each communication mechanism at a target group: management reports for the company’s
executives, weekly announcements to white collar employees, and articles attached to bulletin
boards for shop floor and back office workers. We ran workshops at which employees could
discuss what the new strategy and culture meant to them.
